Loan Consolidation

Another way to avoid the confusion of juggling multiple loans is to consolidate your loans. In some cases you may be able to eliminate multiple monthly loan bills, lock in lower interest rates, lower monthly payments and extend your repayment period.

Start exploring loan consolidation options during the grace period. If you are a new graduate with federal subsidized loans, the Federal Consolidation Loan Program may allow you to extend the repayment of your loans beyond the standard 10 years, depending on your loan balance. For example, physicians with loan balances in excess of $60,000 have up to 30 years to pay back their loans after consolidating. This federal program has a number of additional options that can improve your debt situation, reduce monthly payments by up to 50 percent and increase the amount of disposable income you have.

  • Lock in your interest rate and save thousands of dollars over the life of the loan.
  • Receive a 0.625% rate reduction by consolidating your federal loans before the six-month grace period ends.
  • Combine all of your federal loans into one convenient monthly payment—it is much easier to manage one loan than several.
  • Incur no penalties if you make additional payments or pay the balance of your student loans early. Keep in mind that these are simple-interest loans; it is wise to pay off higher interest debt such as car notes, private loans and credit cards before low-interest federal loans.
  • Improve your credit score—consolidating may improve your loans may improve your credit score, making it easier for you to make significant financial investments (like buying a car or starting a new practice). Making your student loan payments on time is another way to maintain good credit.

Keep Federal and Private Loans Separate When Consolidating

There are many loan consolidation programs that offer to consolidate private and federal debt together into one monthly payment. Although one monthly payment for all debt sounds tempting, the resulting interest costs are definitely not worth the convenience. The Federal Consolidation Loan Program is the most cost-effective way to manage your federal debt because the federal loans remain at a simple interest rate—meaning that you only pay interest on the principal balance you borrowed. By transitioning your federal debt into a private loan consolidation program, your federal debt will begin to compound interest and you will lose out on the low interest rates you received with federal loans. Private loans will most likely have higher interest rates than federal loans: therefore, one solution is to defer your federal loans until you can pay off your private loans. To pay less interest on your loans and pay them off faster, keep your federal loans within a federal consolidation program and manage your private loans separately.

Today, there are many lenders offering consolidation programs, all with unique borrower benefits. Physicians should seek out a lender who can answer questions specific to medical loans, and be flexible to a doctor’s busy schedule. Some lenders offer “teaser” interest rates that sound appealing, but are often unobtainable for most borrowers. So check the eligibility requirements of any benefit that is being offered to make sure that you qualify.

Loan Consolidation Payment Examples

The government reduces a borrower’s interest rate when consolidating variable rate Stafford loans by 0.6% if the loans are consolidated during the borrower’s six-month grace period. The current interest rate for variable rate Stafford borrowers in-grace is 6.54% (on variable rate loans). Consolidating during the grace period will fix the interest rate at 6.625%. The following table depicts the monthly payments of a borrower who has consolidated during his/her grace period.

Student Loan DebtMonthly Payments Before Consolidation* 10 Year Standard Loan TermMonthly Payments After Consolidation 20 Year Loan TermMonthly Payments After Consolidation 30 Year Standard Loan Term
Student Loan Debt: $60,000Monthly Payments Before Consolidation* 10 Year Standard Loan Term: $685Monthly Payments After Consolidation 20 Year Loan Term: $452Monthly Payments After Consolidation 30 Year Standard Loan Term: $384
Student Loan Debt: $80,000Monthly Payments Before Consolidation* 10 Year Standard Loan Term: $913Monthly Payments After Consolidation 20 Year Loan Term: $602Monthly Payments After Consolidation 30 Year Standard Loan Term: $512
Student Loan Debt: $100,000Monthly Payments Before Consolidation* 10 Year Standard Loan Term: $1,142Monthly Payments After Consolidation 20 Year Loan Term: $753Monthly Payments After Consolidation 30 Year Standard Loan Term: $640
Student Loan Debt: $120,000Monthly Payments Before Consolidation* 10 Year Standard Loan Term: $1,370Monthly Payments After Consolidation 20 Year Loan Term: $904Monthly Payments After Consolidation 30 Year Standard Loan Term: $768
Student Loan Debt: $150,000Monthly Payments Before Consolidation* 10 Year Standard Loan Term: $1,713Monthly Payments After Consolidation 20 Year Loan Term: $1,129Monthly Payments After Consolidation 30 Year Standard Loan Term: $782

*For comparison purposes, this scenario assumes borrower makes monthly payments during grace period at the grace period interest rate.

The current interest rate for variable rate Stafford borrowers in repayment on unconsolidated loans is 7.14%. Consolidating during repayment will fix the interest rate at 7.25% over the life of the borrower's loans.

Student Loan DebtMonthly Payments Before Consolidation 10 Year Standard Loan TermMonthly Payments After Consolidation 20 Year Loan TermMonthly Payments After Consolidation 30 Year Standard Loan Term
Student Loan Debt: $60,000Monthly Payments Before Consolidation 10 Year Standard Loan Term: $704Monthly Payments After Consolidation 20 Year Loan Term: $474Monthly Payments After Consolidation 30 Year Standard Loan Term: $409
Student Loan Debt: $80,000Monthly Payments Before Consolidation 10 Year Standard Loan Term: $939Monthly Payments After Consolidation 20 Year Loan Term: $632Monthly Payments After Consolidation 30 Year Standard Loan Term: $545
Student Loan Debt: $100,000Monthly Payments Before Consolidation 10 Year Standard Loan Term: $1,174Monthly Payments After Consolidation 20 Year Loan Term: $790Monthly Payments After Consolidation 30 Year Standard Loan Term: $682
Student Loan Debt: $120,000Monthly Payments Before Consolidation 10 Year Standard Loan Term: $1,409Monthly Payments After Consolidation 20 Year Loan Term: $948Monthly Payments After Consolidation 30 Year Standard Loan Term: $819
Student Loan Debt: $150,000Monthly Payments Before Consolidation 10 Year Standard Loan Term: $1,761Monthly Payments After Consolidation 20 Year Loan Term: $1,186Monthly Payments After Consolidation 30 Year Standard Loan Term: $1,023

Note: If borrower takes the entire 30-year term to pay back the loan, he/she could save $15,120 by consolidating during the grace period (with $100,000 balance).